Cryptocurrency Laundering? Colombia Drug Traffickers Eye Bitcoin

Bitcoin has proved popular in Colombia, especially in small retail operations. But is it being used by criminals?

Police guard a street in Bogota.
Police guard a street in Bogota.
Camilo Vega Barbosa


BOGOTÁ — The cryptocurrency sector has come to be worth almost as much to the Colombian economy as tourism, accounting for just over 2% of GDP. Yet for some analysts, it is starting to come with that smell of laundering for dirty money.

For its sudden and dramatic growth, Bitcoin is no longer viewed as a fad in Colombia. At the start of this year (when its price was around $14,000), Citi Research found Bitcoin trading to be worth over 2% of Colombia's GDP, not far behind tourism's 2.8%.

And while its price has dropped in recent days, bringing its weight closer to 1% of GDP, it remains an important economic factor and disconcerting for its volatility. The Bloomberg news agency cites Colombia as the third country in the world, behind China and Nigeria (and top in Latin America) in terms of growth in Bitcoin transactions. These grew 1,200% in 2017, which means this volatile and controversial cryptocurrency's behavior is more important to the Colombian economy than previously thought.

The country would be wise to begin considering some of Bitcoin's more disturbing traits, like the fact that encrypting impedes tracking operators and makes this an ideal payment method in ransomware or suited to money laundering.

Camilo Silva, an analyst with the investment firm Valora Inversiones, explains that its "boom in Colombia and the world has to do with the increasing entry of expert and non-expert operators, including plenty of millennials. Huge returns of more than 1,500% in 2017 are attracting more and more people."

But Silva warns, "in countries like Colombia where drug trafficking shifts a lot of money around, illegal groups see in cryptocurrencies an opportunity for moving this money without detection. And Colombia stands out for being one of the countries where trading volume has risen most. Our history of illicit activities could be the differentiating factor giving us our leading position."

Each person is responsible for the risks involved.

Bitcoin is barely regulated in Colombia, with little more than official comments and circulars concerning it. The Central Bank points out that it is not a currency in Colombia and, "thus does not constitute a legal means of payment. There is thus no obligation to accept it as a means of meeting obligations. Nor is it an asset that can be considered a currency, as it does not receive the backing of the central banks of other countries. Consequently, it may not be used for payment of transactions within the exchange system expedited by the Issuer's board of directors."

The financial regulator SFC, a Finance Ministry official, has also told entities overseas that they cannot "keep, invest, mediate in or operate with such instruments, nor allow the use of their platforms for operations with virtual currencies." It has advised the public that each person is responsible for the risks involved in cryptocurrency transactions, "as they are not protected by any private or public guarantee, nor their operations liable to be covered by any deposit insurance."

Colombian laws currently impede Bitcoin's penetration into the financial system, but not other sectors of the economy. All that is needed is for a buyer and a seller to download an application to pay for products with Bitcoin, which allows the pseudo-currency to flow into the retail sector (as happens in China) and other activities.

Horacio Ayala, a former head of the customs authority DIAN, says "if Bitcoin is already 2% of Colombia's GDP, it means this market has grown more than we had thought, which undoubtedly means it's time for Colombian authorities to intervene. The government must prevent the use of this cryptocurrency as a means of payment, to avoid it entering businesses and other key sectors. Those betting on using it should stay within the international, high-risk investments sector."

Photo: Andre Francois/Unsplash

Ayala warns that "by its nature, which makes it very difficult to track, Bitcoin is ideal for laundering assets and tax avoidance. One mustn't forget Colombia is a country where there is too much illicit money. In addition to our difficulties in detecting offshore accounts, which at least leave some kind of trail, the problem is worse with cryptocurrencies."

The Central Bank recognizes in one of its own documents the principal challenge of safeguarding "financial integrity in terms of money laundering and financing of terrorism, and taking corresponding preventive measures of monitoring transactions and obligation to report specific movements to control authorities. By nature, cryptocurrencies are platforms that can facilitate movement of resources associated with money laundering and terrorist financing and thus, participants must be monitored by competent authorities."

We should reconsider Bitcoin not just for the intriguing way it has broken certain standards, but for its increasing relevance to our economy.

Moves by platforms like Facebook, which will ban advertising for virtual currencies, threats by the U.S. government to regulate its market, and dramatic price drops like the one on February 5, after four big banks said their customers could not buy Bitcoins with their credit cards, may all have a major impact on the Colombian economy.

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Air Next: How A Crypto Scam Collapsed On A Single Spelling Mistake

It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money for a blockchain-powered e-commerce app. But the simplest of errors exposed the scam and limited the damage to investors. A cautionary tale for the crypto economy.

Sky is the crypto limit

Laurence Boisseau

PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.

Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.

Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.

Share capital of one billion 

The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).

The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.

Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.

While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.

screenshot of the typo that revealed the Air Next scam

The infamous typo that brought the Air Next scam down

compta online

Raising Initial Coin Offering 

Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.

For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."

What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".

Finding culprits 

Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.

Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.

Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.

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